Medical Device Daily West Coast Editor
And MDDs

With its approved h-Patch delivery system, Valeritas (Ramsey, New Jersey) – soon to be majority owned by Paramount Acquisition (New York) – hopes to capture the burgeoning market for insulin that Type II diabetics find easy to use.

“We wanted to create some clever, differentiating tools to deliver molecules and go around the oral route,” said Robert Gonnelli, who founded BioValve Technologies (Westborough, Massachusetts) in 1998, and spun out Valeritas about two weeks ago.

The h-Patch, recently the subject of FDA 510(k) clearance, drew the attention of Paramount, an affiliate of Paramount Biosciences (also New York), which will continue to develop in-licensed drugs and serve as a life sciences merchant bank.

“This is the first healthcare use of a special purpose acquisition company [SPAC],” said Gonnelli, chairman/ CEO of Valeritas, noting that the firms typically have been used to buy out other types of industrial concerns.

Valeritas' portfolio is headlined by the h-Patch technology, a single-use, simple-to-use, daily disposable basal-bolus delivery system intended to provide intensive insulin management for patients who would benefit from more rigorous therapy throughout the day. h-Patch's combined delivery of continuous basal insulin and patient-controlled bolus dosing at mealtimes is intended to offer a more reliable and precise administration of insulin previously available only through expensive and more complicated catheter-based electronic pumps.

Aimed at enhancing patients' compliance and glycemic control, the h-Patch is designed to be easy to use and is the smallest known FDA-cleared insulin delivery system with basal-bolus capability and no visible needle. Phase IV clinical trials are planned to support broad marketing and reimbursement claims for the patch.

At closing of the deal by the end of this year, Valeritas will have $43.5 million of capital to take forward its plans, and on redemption of warrants involved, will raise another $98 million, Gonnelli said.

“Between those two chunks of capital, it will have more than enough money to launch its product [in the second half of next year] and go to revenues,” he said.

Thirty-four of BioValve's 38 employees will staff Valeritas, whose name derives from two Latin words that mean “rapid healing” and “good health.” Other applications of the patch are in the works, but Type II diabetes seemed the obvious first choice, Gonnelli said. As Baby Boomers age, so does their glucose intolerance – though many patients prefer to deny the condition.

The Type II “epidemic is [striking] frighteningly younger” patients, too, and the disease is not always deemed “adult onset” anymore, he noted.

“Friendly ways of treating with insulin has certainly made dents in these markets,” Gonnelli allowed, with a nod to strong-selling Lantus (insulin glargine), from Sanofi-Aventis (Paris). “Now we can give a patient one shot a day in the comfort of their bathroom and safety zone. But they'll get more and more need for insulin, and they'll need prandial control,” which means taking their injection system to work.

“You have to [provide insulin] in a way where people won't say, 'Oh no, that'll screw up my whole life,'” Gonnelli said, which is where Valeritas' patch comes in. “At mealtime, you reach right through your clothes and push the button.”

In Valeritas complex agreement, Paramount will get as many as 11.9 million membership units in the firm, or about 58% of the company, and BioValve, with its wholly owned subsidiary corporation, BTI Tech , will get about 8.6 million units, or about 42%.

Holders of Valeritas' $6.9 million in senior bridge debt are getting warrants to buy, after the closing of the transaction, 644,860 shares of Paramount common stock at an exercise price of $5.35 (subject to adjustment) and will have the chance to exchange their debt into Paramount common stock based upon the same price. Paramount's stock (OTC BB:PMQC) closed Tuesday at $5.24, up 2 cents.

The SPAC also is paying BioValve $10 million in cash and will contribute the balance of its funds to Valeritas. As of June 30, Paramount's trust account contained about $53.5 million.

Membership units issued to Paramount will be reduced on a 1-for-1 basis, with the number of shares of Paramount common stock, if any, redeemed by stockholders for cash, and Paramount is getting warrants to acquire 19.5 million more membership units, which are exercisable on a 1-for-1 basis upon the exercise of any of the 19.5 million outstanding publicly traded warrants issued by the SPAC in its initial public offering.

BioValve will earn $15 million upon the redemption or exercise of all of Paramount's outstanding public warrants and will be entitled to a 4% royalty on Valeritas' sales, up to $25 million.

As many as 15.75 million membership units may be issued to BioValve on achievement of milestones related to launch of the h-Patch, sales and the stock price of Valeritas, which will be applying to trade on a public exchange.

Gonelli said Valeritas expects to commercially launch the h-Patch product in the second half of 2007.

In other financing activity:

• Microchip Biotechnologies (MBI; Dublin, California) reported completing its Series A investment round. A total of $4.5 million was secured, including equity and amounts based on further product development.

The round was co-led by In-Q-Tel, a venture capital fund that identifies technologies to support the missions of the Central Intelligence Agency (CIA) and the larger intelligence community, and RONA Syndicates, a privately held Silicon Valley-based venture group. MBI develops products based on a patent-pending Microscale On-chip Valve (MOV) nanofluidics.

The proceeds will accelerate the development of MBI's first commercial products, develop portable forensics devices for DNA typing and fund the infrastructure necessary for rapid prototyping and manufacturing of nanofluidic microchips.

Scott Yancey, president/CEO of In-Q-Tel, said, “MBI's technology also has the potential to create a tipping point in the development of field-portable integrated solutions and next-generation laboratory instrumentation, providing high value technology solutions for both federal and commercial markets.”